Articles About Financial Advisor Personal/Career Development

The FPA Residency program (originally the ICFP Residency program) was created to help financial planners develop the skills needed to be successful through the use of on-site case studies to gain practical experience guided by a group of peers and a mentor as a guide. Over the years, this program has been a valuable experience for many advisors who have had the opportunity to attend. However, the intimate nature of the event naturally means that many advisors have not had an opportunity to attend, and therefore have not had the opportunity to learn from this event.

In this guest post, Ben Coombs, a veteran mentor of the FPA Residency program and a member of the very first graduating class of CFP certificants in 1973, shares 10 underlying “truths” – wise lessons he learned about being a (better) financial planner – that he developed as an attempt to capture the core values of Residency.

In the Residency program, Ben’s 10 truths became to be known as “Ben’s Bromides”, and include lessons covering many important insights – from lessons regarding the information we provide to clients (e.g., you are only as good as your sources of information, and your sources of compensation will control your sources of information), to lessons about what we should do as financial planners (e.g., don’t design “iron butterflies”, and pursue the possible), to lessons about how we should put together a plan (e.g., financial planning is a “neighborhood play”, and remembering that the financial plan is for the financial planner – not the client!). And while these lessons core values were first taught and developed for FPA Residency, Ben’s Bromides capture a lot of financial planning wisdom in a concise manner that is useful for any and every financial planner!

In today’s competitive environment, it is increasingly popular for financial advisors to talk about “behavior management” as a key value proposition for clients, as more and more studies have come out (e.g., Morningstar’s Gamma, Vanguard’s Advisor Alpha, and Envestnet’s Sigma) showing that financial advisors can often more-than-recover the entire cost of their advisor fee just by helping clients to stay the course, not succumb to their investment biases, and close the behavior gap. However, while financial advisors may create value for clients through such hand-holding efforts, it’s not clear whether marketing “behavior management” is actually an effective way to show our prospective forward-looking value to get clients to work with us in the first place. And, in fact, the message it sends could be driving prospective clients away!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why hand-holding is not an effective value proposition to communicate in order to get new clients, particularly in light of the way it forces prospective clients to awkwardly admit to themselves they’ve made mistakes in the past (in a manner they may not want to do!).

To understand why “You need an advisor to help you manage your behavior” is not an effective value proposition to win clients, put yourself in the client’s shoes for a moment. Imagine a typical affluent individual who is approaching retirement with a $1 million portfolio, knows they need some guidance on making the transition (Social Security timing, retirement projections, etc.), and is perhaps even aware they’ve made some mistakes along the way (e.g., getting caught up in tech stocks during the late 90’s, or a bad rental real estate purchase during the housing bubble). Such a financially successful individual may see the message “research shows bad investment behaviors can result in 1.5%/year or more of performance drag”… but being already financially successful, is more likely than not to assume they are one of the above-average individuals not being fully impacted!

Of course, the advisor can try to “convince” the client of the depths and extent of their problematic investment behaviors… but this can actually sour the relationship even more! For instance, imagine a client that did get caught up in tech stocks and the housing boom, and the prospective advisor says “Well, one of our primary value propositions is to help you manage your behavior so you don’t make those kinds of big mistakes again, that in the future could derail your retirement.” From the client’s perspective… mistakes may have been made, but this can feel like rubbing it in their face! And if a couple is involved, where usually one spouse is primarily responsible for managing their assets, now the advisor is asking that person to acknowledge, in front of their spouse, that they’re so bad at investing, and so hopeless and incapable of learning, that the only solution left is to just walk away and hand it to you, the advisor, to manage instead! Which to say the least, is an awkward conversation for any couple to have!

On the other hand, the reality may be that there’s a niche of clients out there who already have internalized this message, and are looking for an advisor for these reasons (we may even see a lot of these clients since they tend to seek us out knowing they need help). But in the end, this may still only a small subset of investors. For the rest (who may be below-average investors, but they don’t know or realize it, or they still think they can improve and get better), trying to convince them that they need behavior management is doomed to fail because it requires them to make a very negative change about their own self-image… and most people just don’t want to do that! And it completely eliminates your chance to work with clients who simply want to pay you for your advice and expertise about all the other financial planning value-adds that we can bring beyond the investment portfolio and remedying investment behaviors!

Ultimately, the key point is to that framing hand-holding as a financial advisor value proposition may not always work, and, in some cases, may even alienate many of the prospects you are trying to win over. This may be true even when managing behavior actually is valuable for a client who is inclined to make those common investment mistakes (and, as a result, helping clients actually manage their behavior could be a good way to retain clients), but that doesn’t necessarily mean that behavior management is a good way to convince clients to work with you in the first place! Or stated more simply, be wary not to underestimate the power of denial, for those investors who don’t want to admit to themselves – and their spouses – of the mistakes they’ve already made along the way!

As the 2018 school season winds down and summer begins… it’s time for the annual summer slowdown for most advisory firms, as client meetings get harder to schedule because they’re on vacation, and as advisors we ourselves have some time to relax with family… and catch up on good books.

As an avid book reader myself, I’m always eager to hear suggestions from others of great books to read, whether it’s something new that’s just come out, or an “old classic” that I should go back and read (again or for the first time!). And so, in the spirit of sharing, a few years ago I launched my list of “Recommended (Book) Reading for Financial Advisors”, and it was so well received that in 2013 I also started sharing my annual “Summer Reading List” for financial advisors of the best books I’d read in the preceding year. It quickly became a perennial favorite on Nerd’s Eye View, and so I’ve updated it every year, with new lists of books in 2014, 2015, 2016, and a fresh round last year in 2017.

And now, I’m now excited to share my latest 2018 Summer Reading list for financial advisors, with suggestions on books about everything from how to improve your financial advice so it actually “sticks” with clients, guidance on how to navigate your career path as a next generation “G2” advisor (or to hire one if you’re a firm owner looking to attract the next generation of talent), self-improvement books on how to better manage your productivity throughout the day or broader Principles to live and manage your life (and business), and an uplifting read on how the world continues to improve in amazing ways, and why the primary issue we face today is not the concerns of our political system or our economy or all the other dreadful drumbeats of negative news, but simply the ways that our own human instincts cause us to misinterpret (in a systematically negative way) the avalanche of information around us.

So as the summer season gets underway, I hope that you find this suggested summer reading list of books for financial planners to be helpful… and please do share your own suggestions in the comments at the end of the article about the best books you’ve read over the past year as well!

Getting started as a financial advisor is difficult, in a world where most job offers to become a financial advisor still require getting all of your own clients from scratch, and compensation is tied to the amount of clients and business the new advisor brings in. But the reality is that when a financial advisor is hired from the start to get new clients and generate their own revenue, it’s not really a “financial advisor” job in the first place; it’s a job offer to be a financial salesperson, as the key to success is not selling the advisor’s time or expertise, but the company’s products and solutions instead. Which for many (or even most) people, is a terrible way to start a career as a financial advisor.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why taking a position as a financial salesperson is not a good path to becoming a financial advisor, and how those who are interested in actually becoming financial advisors can pursue a better first job instead.

It is first crucial to distinguish between a financial advisor and a financial salesperson. Regardless of what title a company gives to their representatives (no one calls their representatives salespeople because “sales” is taboo, while “advisor” sounds professional), the reality is that when you actually look at the duties of jobs at especially a lot of large national firms that hire “financial advisors”, these firms are looking for financial salespeople, usually because their business is the manufacturing and/or distribution of financial services products (e.g., insurance or investment products). The biggest clue is that you are expected to get your own clients from day 1, and that their training is focused not on earning the CFP certification and learning to give better advice, but on sales training, how the company’s products work, and how to implement them in various client situations. In fact, new advisors often aren’t even allowed to charge clients a separate fee for advice (or need to reach a certain level of production or experience before you will be allowed to)… because, again, these firms are hiring financial salespeople rather than financial advisors.

Fortunately, however, it is not this way at all firms. There are non-sales roles in the industry where you can work as a paraplanner or associate advisor in an existing advisory firm, where your job is to support an existing financial advisor and their clients, rather than bring in new clients – roles that are needed at firms that are actually in the business of giving advice to their clients. The caveat, though, is that firms hiring paraplanners and associate planners these days often want their candidates to have CFP certification (or at least to have passed the CFP exam), so if you are not at that stage, just getting your foot in the door (working in operations or another area) may be your best bet.

Ultimately, the progression of entry-level jobs in the advisory industry (from most to least preferred) would be: (1) a paraplanner or associate planner; (2) an operations, client service, or administrative job; (3) any other salaried job in financial services; and (4) a job as a financial salesperson (as long as you can afford to stay in the business if it turns out that you struggle with sales and getting new clients from the start).

But the key is to understand that the real “entry level job” to a career as a financial advisor is not to start selling products from day 1, and companies hiring “advisors” to do so are really hiring financial salespeople for a sales job instead. Fortunately, even if you don’t succeed in an initial financial salesperson role, you can still move forward in one of the other entry-level positions, whether via association websites like the FPA or NAPFA, the CFP Board’s Jobs Board, or our listing of opportunities at New Planner Recruiting. Additionally, a growing number of large firms are realizing this challenge and increasingly hiring new advisors onto teams in entry-level support roles.

But if an honest assessment of your skills does not suggest you would be a good candidate for a sales role, then accepting a job as a financial salesperson is likely not the best path forward for you! And at a minimum, it’s important to go into the role with your eyes wide open!

With the rise of internet connectivity, it is increasingly feasible to work from anywhere, and simply rely on technology to accomplish key tasks and facilitate important communication. Which for many, is appealing simply to escape the distractions of the busy office environment. Not to mention the opportunity to reduce what for many is a 15-mile driving commute down to a 15-foot walk down the hall!

The caveat, however, is that the traditional office environment provides a lot of structure that is actually very important to maintain personal productivity. As a result, shifting to a home office environment may increase available time – by eliminating the commute and the work colleague distractions – but may not necessarily improve productivity, given the introduction of all the distractions of home and family!

Consequently, to maintain personal productivity in a home office environment, it’s necessary to establish some “office” structure of your own. Including having an office space that is physically separate – at a minimum, with four walls and a door that you can close – to establish (both to family and in your own head) when you’re really “at work” and should not be interrupted with the distractions of home. Similarly, even though you’re at home and can work “anytime”, it’s more effective in practice to have set Office Hours when you intend to be in your office and working… both to set expectations (for yourself and family), and so that you can draw the line of when to stop working (or else, for workaholics in particular, a home office can become all-consuming!).

In addition, it’s important to recognize that while working from home can eliminate the distractions of work colleagues, most people will ultimately crave at least some human interaction with others. Which means those who choose to work from a home office need a plan to deal with the loss of human interaction. From using technology for video conferencing to conduct team (and client) meetings, to using chat tools to maintain inter-office conversation and social interaction, engaging in social media (as a true social engagement channel), and even joining a local association or networking group to have opportunities outside the house, it’s vital to have a plan to maintain your social connections, as one of the most common reasons that people stop working from home is the feeling of social isolation.

And for those who are happy working from home, and intend to do so for a long time to come – be certain to (re-)invest into making your home office into a real space of your own for work, from buying quality office furniture and a comfortable work chair, a good keyboard and mouse, well-sized screens, and even creating multiple workspaces in your home office (to the extent that space allows)… as even though the office may be in your home, you should still treat it like a real office, especially since you may spend a lot of cumulative hours of time there in the years to come!

Being a financial advisor is a high-stakes stressful job. Not only can it be emotionally exhausting to be the supporting pillar for our clients during their times of emotional stress, but for most of us, it’s also our livelihood, and our family’s livelihood, and our employees’ livelihood when they rely on the business for their jobs… and of course, we may be responsible for dozens or hundreds of our clients and their life savings. Which means being a financial advisor comes with its own emotional rollercoaster as an advisor – from the wonderful feelings that come from times of great business and client success, to the pressure and stress that come from more difficult times. Which raises an important question: Where do you as a financial advisor turn for support to deal with your own emotional stress of being a financial advisor?

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss where financial advisors can turn to deal with the emotional stress of being a financial advisor, and why it is so important to build a social support system for yoruself that may include different “tiers” of support, since you will likely need to turn to different people for help with different problems and needs!

For most advisors, our first support system for the ups and downs of the business is our support system for all the ups and downs of life: our spouse, other family members, and/or our close friends. These people are close to us and we can trust that they want what’s best for us, so they are great for support – whether it’s just someone to vent to or a shoulder to cry on, or to give us candid and sometimes critical feedback when we need it. Of course, the biggest caveat to going to friends and family as your support system for the business is that they don’t necessarily know anything about the actual advisory business. So while they may be able to provide some basic emotional support – which may be crucial during tough times – they often won’t be able to provide the type of advice that may be needed to truly change an advisor’s situation for the better.

As a result, the second tier of support for financial advisors is peers and colleagues in the business. Much like how support systems evolve around people facing similar problems in many areas (e.g., AA for those suffering from alcoholism), sometimes the best people to go to for support are your peers who have similar experiences. For many advisors, these are co-workers in their office, but particularly for those working under an independent broker-dealer without a large local branch, or starting an independent RIA (which may not even have an office), this support system can be formed through friends outside the firm but in the advisor industry. The benefit of this support system is that these advisors can better commiserate with you on the challenges you face, and give even better context for what’s really a big deal, and what’s not. The downside to this support system, however, is that sometimes the relationships may not be intimate enough for you to truly turn to when you need help (e.g., people you only communicate with occasionally on message boards), and other times they may not be people you can openly communicate with regarding certain issues you may be facing (e.g., you may not feel comfortable discussing career opportunities with your manager or at an association meeting).

The third tier of an advisor support system – the study group (or “mastermind” group, since it’s not really about “studying” but finding experienced peers) – can help address some of these prior issues. Due to the smaller and more intimate setting of study groups, you can form deeper trust and make yourself vulnerable to the people in the group. Additionally, since study groups are formed by people far enough removed from your own situation that they won’t have conflicts of interest in how they advise you (unlike an employer or co-workers), you can receive more objective feedback. The challenge for many advisors in this tier is forming a study group in the first place. But fortunately, the process isn’t that complex (find a half a dozen advisors or so that you want to trust and get to know better, invite them to be in a study group, start meeting regularly, and form those connections!), but it does take time and effort.

All of that being said, sometimes people simply do not prefer to interact in a group setting when dealing with certain issues, which brings us to the fourth tier of an advisor support system: mentors and executive coaches. Finding a mentor means finding someone who has at least a little more experience than you, and hopefully a little more wisdom and perspective from that experience, that you can go to with your problems. Mentors can provide great support, but the challenge here is that not everyone will be a great mentor (even if they are a great advisor), and sometimes it’s simply too hard to find a great mentor. As a result, some advisors will decide to hire an executive coach. Notably, this is not a consultant for technical business issues, but instead, someone who can help you figure out what you want from your business, hold you accountable when needed, and sometimes just provide a bit of emotional support. Of course, coaches aren’t cheap (especially for financial advisors), but a skilled coach can have a really powerful impact that more than recovers their cost.

The bottom line, though, is just to understand that you need to have some kind of personal support system, to deal with the inevitable ups and downs that come from being a business owner in general, and a financial advisor in particular. We’re all human, so we need to keep an eye on our own mental health. So make sure you have the support system you need. And if you don’t… go find someone!

With the number of different financial advisor business models and firm types that are in existence, prospective financial advisors have a lot of options when it comes to finding “real” financial planning jobs – the kind that don’t have sales requirements, and are really focused on (learning to give) financial advice. And the reality is that not all financial advisory firms are equally great to work for. But the good news is that the best financial advisor companies to work for do share a number of common traits, that can make them easier to identify.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we talk how to find the best financial advisor companies to work for, and why those companies tend to be larger companies with recurring revenue and a healthy growth rate.

Perhaps not surprisingly, if you want to find the best financial advisor companies to work for that won’t just make you a salesperson working on commission, the first secret is… to find companies that don’t work primarily on commission. It sounds intuitively obvious – if you don’t want to work on commission, don’t go to a company that pays its advisors on commission – but the real reason this matters is more nuanced. Because the fundamental challenge for any financial advisor who is paid on commission is that, no matter how successful you were last year, when you wake up on January 1st, your income is zero (or close to zero with some small commission trails). Which is crucially important, because it means commission-based advisors can’t afford to reinvest into staff and create entry-level very many financial planning jobs. As a result, these firms tend to only hire salespeople who can go get more clients (and perhaps some administrative staff), but not real financial planning positions focused on financial advice itself.

The next criteria for finding the best companies to work for is that a company should be growing. At a minimum, you want a firm that is growing at 10% a year. Ideally, one that is growing at 15% to 25% a year. And the reason why is because the simple math of growth means a firm growing at 15% per year will double its size in about 5 years with compounding. Which means twice as much revenue, twice as many clients, and since advisors can only serve so many clients at a time, twice as many clients means twice as many financial advisor jobs in the coming years. And with the creation of many new jobs will also come new opportunities to grow in your own career path as a financial advisor.

Which leads us to the third and final factor that helps to determine which are the top financial planning firms to work for. Simply put: the best companies to work for are the biggest ones (ideally, a firm with at least $3 billion of assets under management or about $25 million of revenue, all the way up to mega-national firms like Vanguard’s Personal Advisor Services and Schwab’s Intelligent Advisory and Portfolio Consulting groups). This is actually a very controversial view, but the industry benchmarking data shows that the biggest firms are the ones adding the most new revenue, the most new clients, and consequently are the most likely to be hiring financial planners (and with recurring revenue, those jobs are likely to be focused on really providing financial planning advice).

The bottom line, though, is just simple to recognize to recognize that the best financial advisor companies to work for have three key traits: a recurring revenue business model, a healthy growth rate, and some size and scale to have a deep bench of new opportunities. The caveat to this is that because these firms tend to pay the best and have the best career prospects, they are also the most competitive. Which means if you want a job at one of the best firms to work for as a financial advisor, you better bring you’re A-game!

Growing a client base and acquiring more ideal clients is a challenge all advisors face, regardless of how successful they currently are. And although almost everyone in the industry has heard that asking for referrals is an important way to grow a business, many advisors struggle with this. Which raises the question, as recently posed by Ron Carson at a recent keynote presentation: “Why don’t more advisors ask for referrals? Are advisors afraid to ask for referrals because they’re not proud of their own services?”

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we talk about why it is so hard to ask for referrals as a financial advisor, and how the many barriers – including our pride (or lack thereof) in the company or products we represent, our confidence in our own value, or even shame about the industry we are in – can make it hard to ask for referrals.

Of course, when financial advisors get started, it isn’t feasible to ask for referrals, because you don’t have any clients yet to refer you; instead, the only choice is cold calling, “cold knocking” (walking the streets and knocking on the doors of small businesses), or some other cold prospecting strategy. In fact, arguably for newer advisors, the whole appeal of being able to ask for referrals to generate new business is the opportunity to get away from cold calling and other types of prospecting!

Yet the caveat is that it’s difficult to ask for referrals, if you’re not actually proud of your company and its products. Because if you know, deep down, that your solutions aren’t really the best for your clients, you’ll likely self-sabotage your own behavior – as I experienced myself when starting out as a life insurance agent, struggling to prospect and ask for referrals because I was embarrassed about the sales tactics my company was using at the time!

Of course, ultimately becoming a real financial advisor is not about getting paid for your company’s products, but getting paid for your own advice, knowledge, and wisdom. But that still means it’s hard to ask for referrals until you’re actually confident in yourself, and your own knowledge. And here, too, many struggle, because if we don’t actually know anything about financial planning, and we know that we don’t, then we can’t confidently convey our value. Which is why professional designations like the CFP marks are so helpful… because often it’s only after completing a designation that many will really start to feel confident that they can bring value to the table, and ask for referrals.

Although even once advisors have expertise and can truly add value as a financial advisor, it can still be hard to have confidence to ask for referrals, when telling people “I’m a financial advisor” risks making you a social pariah because so many consumers have had bad prior experiences with advisors! That’s the challenge of trying to do business in a low trust industry. When metrics like the Edelman Trust Barometer finds that fewer than 50% of all consumers trust financial services companies, it’s literally an odds-on bet that if you say “I’m a financial advisor” and ask for referrals, that the person’s first and immediate impression of you will be negative!

The bottom line, though, is just to recognize that there really are a lot of barriers that make it hard for us to ask for referrals, all of which are built around our own fears and discomfort in what we do, the value we provide, or the company/industry we represent. Our fears hold us back. And often our fears are quite well-founded. It really is uncomfortable asking for referrals when you’re not proud of the company and products you represent. Or you’re not confident in your own value. Or you’re ashamed of the industry you’re in. So, if you find yourself at one of these blocking points, figure what do you have to do to grow past it – whether it’s leaving your company, reinvesting in yourself and your education, or differentiating yourself from the rest of the industry – or you won’t have the confidence you need to ask for referrals!

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A topic of increasing discussion amongst financial advisors is whether it’s truly necessary to dress up in order to attract and retain clients, and whether it might instead be better to adopt more casual attire – either because such attire makes it easier to connect with clients, or because some very experienced and successful advisors have adopted such wardrobes, seemingly with no negative impact on their success. But the reality is, just because a more casual style may work for seasoned and successful advisors, does not mean that it will work for all advisors.

In this guest post, Derek Tharp – our Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – explores the concept of “countersignaling” and what the research shows are the implications it may have for the decision to dress down – particularly amongst younger and newer advisors.

In economics, signaling refers to the ways in which we try to convey information to another party under conditions in which credible communication is difficult. For instance, when meeting with a prospective client, financial advisors may need to engage in certain forms of signaling in order to demonstrate their competency (e.g., becoming a CFP professional), since all advisors trying to win over a prospect would have an incentive to claim they are competent, regardless of their true level of knowledge. By contrast, countersignaling is a strategy which refers to ways in which we may try and demonstrate an even higher level of status by not signaling (e.g., a mid-level student may eagerly attempt to answer an easy question in class, while a high-level student may not, as a signal that their knowledge surpasses the point at which they would take pride in answering such a question).

In an attempt to explain such countersignaling behavior, prior research has used game theory to demonstrate why signaling can be an effective strategy for mid-level individuals with regard to some characteristic (to demonstrate they are not low-level, and to hopefully be perceived as high-level), while countersignaling may actually be more effective for high-level individuals (as they are unlikely to be mistaken as low-level, and signaling could actually give the perception they are mid-level). And this dynamic may have direct implications for the decision to dress down as a financial advisor, as it could be the case that dressing down actually increases the status of an experienced and successful advisor, while dressing down might decrease the perceived status of a young and inexperienced advisor.

Of course, this doesn’t mean that it isn’t still wise to consider other factors, such as a particular client niche (and their typical dress/attire), when deciding whether or not to dress down. But given that many people prefer to not dress up, advisors – and particularly those who are young and inexperienced – should be careful not to skip out on opportunities to signal credibility to prospective clients, and be especially cognizant of the fact that just because seasoned advisors can dress down successfully, does not mean that young and inexperienced advisors can, too!

It’s Memorial Day once again, which means we’re well past tax season, and the busy spring season of industry conferences is coming to an end… and it’s time for the annual summer slowdown for most advisory firms, as clients begin to go on summer vacations and it’s harder to schedule them for meetings, and as advisors we have some time for ourselves to relax with family… and catch up on some good books.

Continuing the annual series, I’m now excited to share my latest 2017 Summer Reading list for financial advisors, with suggestions on books about everything from how to minimize burnout and more fully (re-)engage with your advisory firm, and how the principles of computer algorithms can help you gain personal efficiency and better productivity in your daily life, to building an “enduring” advisory firm that lasts beyond its founder to the next generation of advisors (and how to serve the next generation of clients that will be necessary to perpetuate the firm), practice management books on everything about how to properly value and/or think about selling your firm and how to actually run your business like a business that is scaling up in size, to why humans will likely remain relevant (including and especially with the rise of computers and robots) and what it will take for financial planning to finally, truly become a profession in the 21st century.

So as we head into the summer season, I hope that you find this suggested summer reading list of books for financial planners to be helpful… and please do share your own suggestions in the comments at the end of the article about the best books you’ve read over the past year as well!